Real estate investment trusts (REITs) specializing in office space and student housing are lagging the broad equity market and real estate benchmark ETF this year due to concerns the recent shift towards remote work and online classes could catch on long-term. While office REITs certainly face secular headwinds, the threat facing student housing REITs is more structural in nature, suggesting a more favorable outlook for the latter once a COVID-19 vaccine becomes available.
Related REITs: Boston Properties Inc. (BXP), American Campus Communities Inc. (ACC)
The coronavirus seems bent on accelerating trends in real estate that were already under way.
Designating businesses as “essential” or “non-essential”, for example, has deepened the existential crisis of malls, a group that was already getting squeezed by the so-called retail apocalypse of recent years. Mall owners reportedly collected less than 25% of rents they were owed during the months of lockdown because many non-essential retail tenants were unable to pay their rent. It is hard to pay dividends to your investors if you’re not collecting the rents, which is why a bell weather mall REIT like Simon Property Group (SPG) has lost 60% its value this year.
Meanwhile, the rapid establishment of virtual offices and schoolrooms following stay-at-home orders have allowed data centers to keep riding the substantial secular tailwinds of cloud computing. Having collected all their rent this year and reported lease spreads over…